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Friday, 30 September 2016

The safe haven Swiss franc held firm on Friday as concerns about the health of Deutsche Bank undermined risk sentiment, while the Japanese yen looked set for its third straight quarter of gains despite suffering a slight loss on the day.

Earlier, the dollar rose from around 101.15 yen to 101.80 yen in the space of a few minutes, a move that traders said appeared to be flow-driven rather than in reaction to any specific news.

While the catalyst was unclear, one trader said there may have been dollar buying linked to the month-end or quarter-end.

The dollar later pared some of its gains and was last trading at 101.28 yen, up 0.2 percent yen on the day. That was still down from Thursday's high of 101.845 yen.

The yen, often seen as a safe-haven currency, has rebounded from Thursday's trough versus the dollar as global share prices slipped on worries about Deutsche Bank (DBKGn.DE), under pressure from a massive fine the United States demands over its sales of mortgage-backed securities.

The latest lurch came after Bloomberg reported that a number of hedge funds that clear derivatives trades with Deutsche had withdrawn some excess cash held at the lender.

Another focus is next week's U.S. economic data.

The dollar is likely to head lower against the yen if the U.S. indicators are weak, said a trader for a Japanese bank. He added, however, that any downside test is unlikely to be sustained and that there are likely to be phases when the dollar gets a lift from short-covering.

The yen has gained about 2 percent so far this quarter, on course to log its third consecutive quarter of gains, as investors suspect the Bank of Japan has reached a practical limit in stimulus and has lost clout in cheapening the yen.

For now, though, the dollar has been supported above 100 yen, seen as a psychologically important level by many.

Traders are also wary of possible attempts by Japanese authorities to talk down the yen, even though they think their intervention at this stage is unlikely.

"On the whole, I would expect the dollar to gradually weaken broadly, for as it stands now, Democrats are likely to win the White House, which means the Fed will remain cautious on raising rates," said a trader at a European bank.

The Swiss franc hit a six-week high against the euro at 1.0832 franc EURCHF earlier on Friday. Against the dollar, the Swiss franc CHF= stood at 0.9661 franc, having set a one-month high of 0.9640 franc on Thursday.

The euro EUR= eased 0.1 percent to $1.1217, having stayed in a narrow trading range of just over two cents for the whole of September, the tightest since June 2014.

The British pound GBP held steady at $1.2969. Expectations that the Bank of England might further ease monetary policy in coming months have weighed on sterling.

On the quarter, the pound lost 2.6 percent, which would be the fifth quarter of losses in a row, the longest such streak since 1983-84.

Some currency analysts think the pound's outlook remains bleak given worries that an exit from Europe's single market will drag Britain into a recession and blow out its ballooning current account deficit, already among the highest in the developed world.

"The current account deficit in UK is close to 7 pct. Budget deficit is close to 5 pct of GDP. We've got political turmoil. And for that, it will give zero percent yield. How much of that would you like to buy?," said David Bloom, London-based global head of Forex strategy at HSBC.

The Federal Reserve and Bank of Japan's actions last week have given a second wind to an alternative investment strategy that relies on cheap money and low market volatility to produce outsized returns.

Risk parity trades, which involve borrowing to take long positions in both stocks and bonds, have been favored by some big hedge funds and other institutional investors starved for yield by eight years of record low global interest rates.

The funds had a rough 2015 when volatility spiked because of concerns about China's economy and tumbling oil prices, prompting investors to yank more than $2 billion from risk parity portfolios, according to Morningstar. Since January, however, they have bounced back as volatility has fallen, delivering on balance returns more than twice as high as the mid-single-digit total returns from this year's sputtering U.S. equity and fixed-income markets.

For example, Bridgewater Associates, which pioneered risk parity investing two decades ago, has seen its $62 billion All Weather fund post a 13.1 percent return from January through end of August.

That rebound looked under threat, however, in the run-up to the Fed's Sept. 20-21 policy meeting when several policymakers seemed to suggest that a rate rise was in the cards and markets turned choppy.

Yet the Fed not only held fire, but also lowered its forecasts for future policy rates, effectively assuring investors that borrowing costs will stay low for longer. The BOJ, on its part, both affirmed its commitment to more asset purchases and made a new pledge to keep 10-year bond yields near current levels around zero.

The central banks' actions have stoked gains in stocks, junk bonds, emerging market debt and other risky assets that risk parity funds target. They also brought market measures of risks of big swings in the stock and bond markets to their lowest so far this year.

The question now is whether investors will regain confidence in the strategy that badly underperformed in 2015 and only started delivering again this year. In 2015, Bridgewater's All Weather, for example, lost 7 percent and another, the AQR Risk Parity Fund, lost 8.1 percent compared with fractionally positive total returns for equities and bonds.

While the case to buy risk-parity funds looks solid, investors have so far remained skeptical.

Morningstar estimates that open-ended funds that employ risk parity have seen about $957 million in net outflows in the first eight months of 2016 to $8.50 billion.

Bridgewater, the world's largest hedge fund company, declined to comment or provide data on investor flows.

The Nasdaq-listed AQR fund with around $442 million in assets is on pace for its 12th straight month of outflows.

It has bled more than $200 million since September 2015, according to Lipper data, despite a total return of 14.2 percent so far this year, including a 2.6 percent bounce last week after the Fed meeting.

A spokesman for AQR declined to comment.

ELECTION LOOMS, BUT LESS FEAR FOR NOW

One possible explanation for investor caution is the Nov. 8 U.S. presidential election, which has emerged as a source of anxiety.

Democrat Hillary Clinton and Republican Donald Trump are in a tight race and its outcome can change Washington's course on spending, trade and taxes. The uncertainty tends to make investors nervous and cut their holdings of stocks and other riskier investments.

"That could add as much volatility as monetary policy," said John Bredemus, vice president at Allianz Investment-U.S. in Minneapolis.

For now, though, low volatility prevails in the aftermath of the Fed and BOJ actions.

The CBOE VIX index known as Wall Street's equity fear gauge, is anchored near its lowest level of the year, and Bank of America Merrill Lynch's MOVE index, which tracks expected bond market volatility three months out, is at its lowest since the end of 2014.

For Bridgewater, AQR fund and their peers, that is a green light to keep betting on a range of risky assets.

"Things are moving in the right direction and that argues for low volatility," said Jeff Kravetz, regional investment director at the Private Client Reserve at U.S. Bank in Phoenix.

Thursday, 29 September 2016

Commodity-linked currencies held firm on Thursday after OPEC agreed to cut oil output in the first such deal since 2008, boosting oil prices while a broad gain in risk assets dented the yen.

The Organization of the Petroleum Exporting Countries said it would reduce output to a range of 32.5-33.0 million barrels per day, a reduction of 0.7-2.2 percent from OPEC estimates of its current output at 33.24 million bpd.

That lifted oil prices, with international benchmark Brent futures posting their biggest gains in 2 1/2 months to a three-week high of $48.96 per barrel.

"It was a surprise that OPEC reached an agreement. It was even more surprising that they agreed on a production cut," said Kazushige Kaida, head of forex at State Street in Tokyo.

Reflecting oil's status as Canada's leading export product, the Canadian dollar CAD=D4 climbed to C$1.3054 versus the greenback after having risen 0.9 percent on Wednesday, its biggest daily gain in a month.

The Norwegian crown was a clear winner, hitting a near five-month high of 8.0222 to the dollar and 14-month high of 9.0085 per euro

The Australian dollar AUD=D4 also hit a three-week high of $0.7696, as the country exports various natural resources even though it is a net importer of oil.

Some analysts cautioned that the oil-cut deal is leaving crucial details on how much each country will produce to be decided at the next formal OPEC meeting in November, when an invitation to join cuts could also be extended to non-OPEC countries such as Russia.

"It could be that everyone is thinking that they don't have to cut output themselves," said Daisuke Uno, chief strategist at Sumitomo Mitsui Bank.

"I think the markets are still not fully convinced," he added.

Still, a jump in oil prices boosted risk assets and undermined the yen, which is often seen as a safe haven at times of economic stress.

The dollar rose 0.7 percent to 101.35 yen JPY=, extending its rebound from one-month low of 100.085 touched on Tuesday.

But its rise was blocked for now by technical resistance from the Ichimoku tenkan line at 101.44. Many market players think dollar/yen is still firmly in the downtrend seen since the start of year.

The dollar has weakened against the yen as investors grew increasingly skeptical of the Bank of Japan's ability to ease policy and cheapen the yen, with many seeing its stimulus measures having reached their effective limit.

In addition, traders suspect Washington will be less tolerant of a cheaper yen given the U.S. presidential election in November.

"While the recovery in oil prices was positive for risk-taking, there remain other worries, so safe-haven demand for the yen will remain," said State Street's Kaida.

The euro EUR= was little changed at $1.1222, recovering from Wednesday's low of $1.1182 helped in part by rebound in shares of Deutsche Bank.

The euro is trading near the middle of its narrow triangle holding pattern since August.

In the short term, German inflation data could help the euro if the data shows a rise in consumer prices as expected, said Masafumi Yamamoto, chief FX strategist at Mizuho Securities.

German annual inflation is expected to reach 0.5 percent in September from 0.3 percent in August.

"German inflation has been recovering after hitting a bottom of minus 0.3 percent in April. If we see a number in line with market expectations, that could dampen expectations of further momentary easing by the European Central Bank in December," he said.

UK shares rose on Wednesday, recovering from a one-week low as shares in commodities-related stocks rallied and tour operator TUI gained after raising its profit forecast.

The blue chip FTSE 100 index was up 0.9 percent at 6,867.90 points by 0908 GMT, in line with a broader rally in European stock markets.

Mining companies were the top risers, with Rio Tinto, Anglo American and BHP Billiton all gaining between 2.5 to 3.1 percent, with analysts citing a rise in the price of nickel following the suspension of mines in the Philippines as giving the sector a boost.

TUI also saw strong gains, up 2.4 percent and close to an 8-month high after the holiday company lifted its core profit guidance for 2015/16, helped by strong demand from British tourists and a lower exposure than competitor Thomas Cook to Turkey, which has been hit by security fears.

"The TUI results are quite surprising in a way because we had the opposite story yesterday from Thomas Cook," Jasper Lawler, analyst at CMC Markets, said.

"TUI, fundamentally, are a German company, so they just don't have the pound effect weighing on them in quite the same way that maybe the UK travel firms do," CMC Markets' Lawler said, adding that the drop in pound had made it more expensive for British tourists.

The FTSE 100 fell in the previous two sessions on the back of worries surrounding its banking sector. RBS' $1.1 billion (845.18 million pounds) settlement to resolve claims in the U.S. that it sold mortgage-backed securities to credit unions did not weigh on its shares, which were up 1.4 percent.

"This payment had already largely been provided for and so should not have a material impact on our profit estimates or the group’s capital position," Gary Greenwood, analyst at Shore Capital Markets, said in a note.

British grocer Sainsbury was the top faller on the blue chip index, with a 3 percent fall in its share price pushing it back below its pre-Brexit vote levels after reporting another drop in quarterly underlying sales.

Royal Mail dropped 1.8 percent, after rival UK Mail soared over 43 percent after a deal with Deutsche Post.

Equities in Asia had gained on Tuesday from a perceived win by Democrat Hillary Clinton at the first presidential debate over Republican Donald Trump, who is seen as creating greater uncertainty for the U.S. and global economies.

But the relief gave way to angst about the European financial sector, gripped by worries over the health of Deutsche Bank, whose shares hit a record low overnight.

Oil, weighed down by waning hopes that a meeting of producers would reduce oversupply, also soured sentiment.

Japan's Nikkei .N225 underperformed and was last down 1.4 percent. Japanese stocks were dogged by threats of a robust yen, which hurts exporters' earnings.

"By looking at the current dollar-yen levels, companies will likely have no choice but to lower their dollar-yen assumptions in their mid-year earnings releases," said Norihiro Fujito, a senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo.

Overnight, U.S. shares rose on broader support for equities following the presidential debate and upbeat consumer confidence data, though gains were capped by energy sector weakness.

Oil fell about 3 percent on Tuesday after Saudi Arabia and Iran dashed expectations that the two major OPEC producers would find a compromise at a meeting in Algiers to help ease a global glut of crude.

U.S. crude had crawled up 0.3 percent to $44.79 a barrel on Wednesday, the final day of the Sept. 26-28 International Energy Forum gathering.

With oil prices having dropped to less than half of their 2014 highs, the Algiers talks are OPEC's second attempt at an output agreement after a failed round in Qatar in April.

"The market currently does not expect any agreement at this meeting, so no agreement should have only limited negative impact on the oil price," wrote Marshall Gittler, head of investment research at FXPRIMUS.

"Expectations are now so low though that if by some miracle they did come to even a half-hearted agreement, that would probably send prices up sharply."

The dollar was up 0.2 percent to 100.635 yen JPY= but was still in reach of a one-month low of 100.085 seen the previous day.

It had popped up to 100.990 yen on Tuesday when Clinton was seen to have emerged as the debate winner. But the rise faded with the market reminded that Clinton also favors a weaker dollar.

The euro was steady at $1.1211 EUR= after losing about 0.4 percent overnight on Europe's banking sector worries.

The near-term market focus was on comments European Central Bank President Mario Draghi and Federal Reserve Chair Janet Yellen.

Draghi will face tough questions from German lawmakers on Wednesday about the central bank's monetary policy, while Yellen will deliver semi-annual testimony before the U.S. House Financial Services Committee.

The Mexican peso, which jumped against the dollar following Clinton's perceived debate win, held on to gains.

It was little changed at 19.39 pesos to the dollar, having rallied on Tuesday from a record low of 19.92 hit on worries that a Trump win would threaten Mexico's exports to the United States.

Investors have tended to see Clinton as the candidate of the status quo, while few are sure what a Trump presidency might mean for U.S. foreign policy, international trade deals or the domestic economy.

A CNN snap poll said 62 percent of respondents felt Clinton won and 27 percent believed Trump was the winner. Global shares rose after the debate, while the Mexican peso jumped 2 percent against the dollar.

With just over six weeks until Election Day, some investors see a toss-up contest creating volatility in certain sectors, including health insurers, drugmakers and industrials.

"Volatility is going to be the norm, not the exception over the next several weeks," said Art Hogan, chief market strategist at Wunderlich Equity Capital Markets in New York.

Shares of Amgen dropped 2.15 percent to $169.80 after the drugmaker said its multiple myeloma drug was not found to be superior to Takeda's (4502.T) Velcade in a late-stage study in previously untreated patients.

Tuesday, 27 September 2016

Asian shares recovered from an early bout of nerves while the Mexican peso surged on Tuesday as investors awarded the first U.S. presidential debate to Democrat Hillary Clinton over Republican Donald Trump.

Markets have tended to see Clinton as the candidate of the status quo, while few are sure what a Trump presidency might mean for U.S. foreign policy, international trade deals or the domestic economy.

Opinion polls have shown the two candidates in a very tight race, with the latest Reuters/Ipsos polling showing Clinton ahead by 4 percentage points, with 41 percent of likely voters.

EMini futures for the S&P 500 recovered to gain 0.6 percent, an unusually energetic move for Asian hours. The reaction in Europe was much the same, with euro STOXX 50 futures up 0.7 percent.

Japan's Nikkei swung 0.8 percent higher, having been down 1.5 percent at one stage. The U.S. dollar rebounded to 100.83 yen from a one-month low around 100.08.

"Markets started to call the debate for Hillary within the first 15 minutes or so, with the Mexican peso surging in what is probably its busiest Asian session in years," said Sean Callow, a senior currency analyst at Westpac in Sydney.

"The bounce in S&P futures, AUD and USD/JPY all show that investors were watching closely and didn't hesitate to declare Trump the loser."

The dollar sank 1.7 percent on the peso, lifting the peso from an all-time trough hit in recent days on concerns that a Trump presidency would threaten Mexico's exports to the United States, its single biggest market.

TRUMPOMETER

"There's a thing called 'Trump thermometer'," said David Bloom, London-based global head of forex strategy at HSBC.

"If you want to know who won the presidential debate, don't go to Twitter or Facebook. Just look at the dollar/Mexico peso."

Much the same goes for the Canadian dollar, which touched its lowest since March in early trade before rallying to $1.3171 on its U.S. counterpart.

Against a basket of currencies, the dollar was a fraction firmer at 96.3677 and the euro was steady at $1.1242.

Other safe-havens ebbed, with yields on U.S. 10-year Treasuries rising a basis point to 1.60 percent.

Online betting companies in Australia shortened the odds on a Clinton win in the wake of the debate, leaving her as the clear favourite among punters.

A CNN poll of viewers, which the broadcaster noted was likely skewed somewhat to Democrats, showed 62 percent thought Clinton won the debate with 27 percent for Trump.

In commodity markets, oil consolidated its gains having bounced 3 percent on Monday as the world's largest producers gathered in Algeria to discuss ways to tackle a crude glut that has battered prices for two years now.

Brent crude was off a slight 16 cents at $47.19 a barrel, while U.S. crude dipped 8 cents to $45.85.

The European Union may opt out of new global rules aimed at preventing another financial crash because officials are worried they put European banks at a disadvantage at a time when they are losing market share to U.S. rivals.

European regulatory and banking sources said the rules, nicknamed "Basel IV" by bankers because they are an addition to "Basel III" capital rules that are already in place, unfairly penalise Europe's banks.

U.S. regulators, and other supporters of the proposals, say they are needed to make sure banks have enough spare capital to match the amount of risk they have taken.

The plans would change the way banks assess risks on their balance sheet, which then determines how much capital they must hold as an emergency buffer.

EU officials say the changes will make European banks and their large loan portfolios look more risky, and hence need more capital, than U.S. banks which provide more bond financing and package mortgages on for trading elsewhere.

"If we can't reach a compromise that's acceptable for us, we have to pull the emergency brake and opt out," a European regulatory official said on condition of anonymity due to sensitivity over the Basel talks.

"Nobody wants that, because it would damage the trust in European banks and regulators. But it's clear that there are red lines for Europe."

The Basel Committee, a group of global regulators, which drew up "Basel III" capital rules after lenders were rescued by taxpayers in the 2007-09 financial crisis, wants the extra changes to be agreed by the year end.

But the appetite for regulation is waning as policymakers prioritise growth and if European regulators refuse to sign on to the new rules, the project could be undermined.

Even if they are agreed by members of the committee, the rules are not legally binding until they have been approved by the European Commission, EU parliament and jointly by EU states.

Any of the 28 member countries could decide not to apply the rules which would undermine the goal of a global approach to preventing financial crises.

A spokeswoman for the Basel Committee declined to comment on Monday.

NO CAPITAL INCREASE PLEASE

EU leaders want to avoid forcing banks to significantly raise capital requirements, a message that Basel's oversight body headed by European Central Bank President Mario Draghi passed on to the committee.

"We expect the Basel Committee to honour its commitment of not significantly increasing its capital requirements," a spokeswoman for the European Commission said on Monday.

European banks, by and large, already meet or exceed the Basel III bank capital rules well before they take full effect in 2019, but bankers say "Basel IV" could force them to increase their capital buffers by up to 10 percent.

Michael Lever, head of prudential regulation at banking trade body AFME, said the new rules will likely increase capital at least by 6 percent on average.

And as U.S. banks gain market share in Europe, this could be damaging for business.

European bankers and regulators say that in the current proposal, the risk weightings would particularly raise capital requirements for low risk mortgages.

"There would be effects that are not justified," a second European regulatory source said.

An EU official said the bloc would "decide on the best course of action" if the final rules from Basel point to a big hike in capital.

Basel Committee Secretary General William Coen said this month the aim was not to increase capital but to end big differences in how banks set aside capital. The body headed by Draghi has endorsed the direction of the reforms, he said.

U.S. CONDITIONS

Europe is particularly sensitive to Basel's rules as lenders provide the bulk of financing for its economy, unlike in the United States where markets are the main source of cash.

Investors are already questioning whether banks in countries like Italy are not holding enough capital, and Germany was prompted on Monday to dismiss "speculation" that Deutsche Bank needs state aid.

U.S. regulators are pushing for the changes, which include a tougher "floor" or level of capital a bank cannot go below irrespective of its internal risk calculations. Some U.S. officials have said they suspect that some banks have been gaming risk-weightings to ease capital requirements.

The United States is already going further than the planned Basel rules in some respects by reining banks' ability to use their own models for calculating capital, and instead use a standard approach provided by regulators.

Some European regulators say the floor undermines the core objective of Basel rules, that capital requirements should be directly linked to the level of risk at a bank. Regulators in Japan also have reservations about Basel's proposals.

"A standardised floor would not be in line with our objectives and should not be part of the final framework," an EU official said.

Bankers say, however, that keeping the floor proposal is a U.S. condition for accepting a dilution of the curbs Basel has proposed on the use of models at banks for capital calculations - a more widespread practise in Europe.

Bankers said Europe's threat to derail the rules could be little more than "pounding the table" ahead of the next round of Basel meetings in Chile on November 28-29.

"I think the deal will get done. There is too much political capital behind it not to be done," said AFME's Lever.

However, some elements could be delayed, such as reform of weightings for operational risks, though they constitute a far smaller portion of overall capital requirements, bankers say.

"Credit risk, including the floor, is the whole ball of wax, so if you delay that, you delay the whole thing," a banking industry official said.

Monday, 26 September 2016

The yen was holding strong on Monday in the face of another volley of promises from the Bank of Japan to do everything necessary to get inflation back on the rise, including cutting interest rates further into negative territory.

All eyes will be on the first U.S. presidential debate later, with the chances of a Donald Trump presidency, and the protectionist boost for the dollar many analysts think it might imply, moving to the front of investors’ minds.

But with the probability of a rise in U.S. interest rates in December seen as unlikely to move swiftly higher, a number of major bank analysts believe the dollar could have peaked for now and may suffer, particularly against the yen, in coming weeks.

"The temptation is to say that the dollar should continue to weaken this week," said Sam Lynton-Brown, a currency strategist with BNP Paribas in London.

"Real yields have pushed much lower and there doesn't seem the potential for the Fed to move market expectations sharply from where they are - around 55 percent for a hike in December."

By 0715 GMT, the dollar had fallen 0.4 percent to 100.63 yen JPY=. The euro also nudged up 0.1 percent to $1.1234 EUR=, adding to Friday's modest gains made after the release of relatively upbeat euro zone flash composite purchasing managers' index.

Bank of Japan Governor Hiruhiko Kuroda's commitment to use all tools necessary to get inflation back to its 2-percent target did little to shift the conviction among bank analysts that Tokyo is increasingly impotent.

BNP's Lynton-Brown said that moves in the dollar-yen rate were likely to be guided more by the U.S. side of the equation than anything Japan could do in the weeks ahead.

In that light, some say the first of three debates between U.S. presidential candidates Trump and Hillary Clinton has the potential to move the dollar.

"We still see the euro and yen especially appreciating further," Citi analysts said in a morning note.

"The big risk to this view is the upcoming U.S. Election. A Trump presidency would likely be destabilizing for emerging currencies based on his strong views on China, Mexico, and trade policy in general."

Among the currency majors, Elsa Lignos, a senior strategist with RBC Capital Markets, underlined the exposure of the Canadian dollar to a Trump presidency.

"The outcome of the debate will be watched most closely for the Mexican peso, but we still argue the Canadian dollar is the currency that is really underpriced for US election risk," she said.

The Canadian dollar, already hit by a fall in crude oil prices on Friday, was down 0.15 percent on the day at C$1.3183.

The dollar wobbled against the yen and euro on Monday, cautiously held in a narrow range ahead of the impending first debate between U.S. presidential candidates that could determine the currency's near-term direction.

The greenback was off lows versus the yen and euro it touched late last week after long-term rate hike expectations were tempered following the Sept. 20-21 Federal Reserve policy meeting, but it remained on shaky ground as market focus shifted from monetary to political risk.

The dollar was down 0.1 percent at 100.860 yen JPY=. It saw a one-month low of 100.100 on Thursday before pulling back to as high as 101.250 towards the end of last week.

The euro nudged up 0.1 percent to $1.1234 EUR=, adding to Friday's modest gains made after the release of relatively upbeat euro zone flash composite purchasing managers' index. The common currency briefly rose to as high as $1.1258 on Thursday.

The market awaited the debate between Democrat Hillary Clinton and Republican Donald Trump, the first of three face-to-face contests, to be held at 0100 GMT on Tuesday.

"If the debate ends in favor of Trump and adds to his support, we may see dollar/yen slip on risk aversion. Trump has strongly backed a weaker dollar, which is likely to retreat particularly against the yen if he is seen to have taken the lead," said Shin Kadota, chief Japan FX strategist at Barclays in Tokyo.

While both Clinton and Trump are seen favoring a weaker dollar, some fear a Trump victory could expose the U.S. world's largest economy to greater negative shocks.

"What's concerning is whether the dollar can retain its number one safe-haven status if greater support for Trump begins clouding the economic outlook," said Bart Wakabayashi, head of Hong Kong FX sales at State Street Global Markets.

"The dollar may not be able to defend its number one spot if the economic outlook turns negative, handing its top safe-haven place to the yen."

The dollar, on the other hand, fared better against the Australian and Canadian dollars after crude oil prices tumbled on Friday and weighed on the commodity-linked currencies.

The Australian dollar extended Friday's losses and was last down 0.1 percent at $0.7613 AUD. The Canadian dollar was steady at C$1.3172 to the dollar CAD=D4 after sliding sharply on Friday from a peak around C$1.3000.

Brent crude was up 0.7 percent after dropping nearly four percent on Friday amid signs Saudi Arabia and Iran were making little progress in achieving preliminary agreement to freeze production.

Sterling crawled up 0.1 percent to $1.2984 GBP=D4, posting a small bounce after dropping 0.9 percent on Friday, when it touched a five-week low near $1.2900 on worries over Britain's exit from the European Union.

Friday, 23 September 2016

The dollar gained in Asian trading on Friday but was on track to end a tumultuous week with losses after the Federal Reserve trimmed its long-term interest rate expectations and the Bank of Japan rebooted its monetary policy framework.

The dollar was up 0.4 percent at 101.09 yen JPY=, pulling away from a nearly four-week low of 100.10 touched overnight, though still poised to shed 1.1 percent for the week.

Markets in Tokyo reopened after a public holiday on Thursday, and digested Wednesday's news that the U.S. Federal Reserve left interest rates unchanged but signaled it could still tighten monetary policy by the end of this year.

The U.S. central bank also projected a less aggressive rise in interest rates next year and in 2018, and it cut its longer-run interest rate forecast to 2.9 percent from 3.0 percent.

Also on Wednesday, ahead of the holiday, the BOJ shifted to targeting interest rates on Japanese government bonds as the focus of its massive monetary easing program, dropping its explicit target of increasing base money.

The BOJ's announcement initially sent the dollar up more than 1 percent to 102.79 yen, though the gains unraveled as investors realized that the overall market impact was far from obvious.

"The build-up to Wednesday was large, with lots of anticipation, but everyone kind of walked away scratching their heads," said Bart Wakabayashi, head of Hong Kong FX sales at State Street Global Markets.

"We're defaulting to the levels where the market is comfortable. There wasn't enough to energize the dollar through 100 yen, or 103," he said.

Some analysts took heart at the fact that the dollar was able to pull itself off its overnight session lows above the 100-yen level, which remains a key technical point.

A break of that could open the pair's downside, said Yutaka Miura, a senior technical analyst at Mizuho Securities.

The dollar's proximity to the 100-yen did not escape the attention of Japanese authorities.

"We're concerned about recent extremely nervous moves in the currency market," Chief Cabinet Secretary Yoshihide Suga told a regular news conference on Friday, when asked about the yen's recent rise against the dollar.

Japan's top currency diplomat, Masatsugu Asakawa, vice finance minister for international affairs, said on Thursday that Japanese financial authorities are watching for speculative currency market moves and would respond if needed.

Against the yen, the euro gained 0.2 percent to 113.20 yen EURJPY, down 0.8 percent for the week. It edged down 0.1 percent to $1.1197 EU, aiming for a 0.3 percent weekly gain.

The dollar index, which tracks the greenback against a basket of six major rivals, added 0.1 percent to 95.522 . on track to log a weekly loss of 0.6 percent.

The British pound gave back some of the previous session's gains made after a Bank of England policymaker said she saw no case for a further cut in interest rates to boost the economy following Britain's vote to leave the European Union.

After slipping to a five-week low of $1.2946 GBP on Wednesday, sterling climbed as high as $1.3121 overnight. It was last down 0.3 percent at $1.3040, up 0.3 percent for the week.

The Fed also projected a less aggressive rise in interest rates next year and in 2018, and cut its longer-run interest rate forecast to 2.9 percent from 3.0 percent.

Investors did not appear to significantly shift their bets on the timing of the next rate hike. Prices for fed funds futures contracts suggested investors continued to see just better-than-even odds of a hike at the December policy meeting, and almost no chance of an increase in November.

U.S. stock prices rose after the Fed released its statement.

The dissents from those wanting a hike this week suggested to some economists that pressure was building.

"While the Federal Reserve held rates unchanged, the highly unusual 7-3 vote points to the depth of its policy dilemma and makes a December hike more likely," said Mohamed El-Erian, chief economic adviser at Allianz.

FOCUS ON DECEMBER

Last December, the Fed signaled that four rate increases were likely in 2016, but that was scaled back in March due to a global growth slowdown, financial market volatility and concerns about tepid U.S. inflation.

The central bank appeared more confident on Wednesday, saying in its statement that near-term risks for the economic outlook "appear roughly balanced." That means policymakers think the economy is about as likely to outperform forecasts as to underperform them.

The economy expanded sluggishly in the second quarter and added fewer jobs than expected in August. Inflation also showed signs of stirring last month.

The Fed's decision, which came the same day that Japan's central bank added a long-term interest rate target to its massive asset-buying program in an overhaul of its policy framework, was widely anticipated by economists.

A Reuters poll showed the median probability of a September rate rise was about 25 percent. Only 6 percent of those surveyed expected the Fed to raise rates, with the majority believing it would wait until December.

The Fed has policy meetings scheduled in early November and mid-December. Economists believe policymakers would avoid a rate hike in November in part because the meeting falls just days before the U.S. presidential election.

Thursday, 22 September 2016

Asian shares rallied on Thursday, taking their cue from Wall Street, after the Federal Reserve left U.S. interest rates unchanged and slowed the pace of future hikes, knocking the dollar and lifting commodity prices.

European markets are likely to follow suit, with financial spreadbetters predicting Britain’s FTSE 100 .FTSE will open up as much as 0.6 percent, and Germany’s DAX .GDAXI and France’s CAC 40 .FCHI will start the day about 0.8 percent higher.

MSCI's broadest index of Asia-Pacific shares outside Japan extended gains to 1.2 percent in its sixth straight session of increases, just 0.9 percent shy of its one-year high touched earlier this month.

Asia's strong gains follow surges of 1.1 percent for the S&P 500 .SPX, 0.9 percent for the Dow Jones industrial average .DJI and 1.3 percent for the Nasdaq Composite . which closed at a record high.

"The market got what it expected/wanted," said Daniel Morris, senior investment strategist at BNP Paribas Investment Partners in London. "Another dose of central bank support for markets following the Bank of Japan meeting."

While Tokyo is on holiday on Thursday, stocks .N225 closed up 1.9 percent on Wednesday after the BOJ's shift to targeting a positive yield curve, a move that was considered bullish for banks, insurers and pension funds.

But "Japan equities may lag as the bank relief rally runs its course and the yen is strengthening," BNP Paribas's Morris said. "Japan needed a Fed hike in order to push the yen down."

The Fed did signal it could hike rates by year-end as the labour market improved further, but cut the number of rate increases expected in 2017 and 2018. It also reduced its longer-run interest rate forecast to 2.9 percent from 3 percent.

That left investors feeling any tightening would be glacial at best. Market pricing for a December move rose only a fraction to 59.3 percent <0#FF:>, from 59.2 percent, according to CME Group's FedWatch tool.

Richard Franulovich, an analyst at Westpac, noted that back in June the median dot plot showed five hikes to end-2017. Now it is down to just three.

"We do not feel that the dollar has the wherewithal to make a more concerted run higher in the next few weeks," he added. "The FOMC is unlikely to deliver anything more than a very 'dovish' December hike."

The dollar rose as high as 102.755 yen after the BOJ's announcement on Thursday, but the yen took back its lost ground after the BOJ's announcement left some unimpressed and following the Fed's less-hawkish statement.

"Fundamentally, (the BOJ decision) did not amount to an easing of monetary policy, but merely offers policy tweaks at the margin and a strengthening of forward guidance," said Frederic Neumann, co-head of economic research at HSBC in Hong Kong.

"The BOJ now essentially promises to purchase JGBs for even longer, until inflation exceeds, and not merely meets, its 2 percent inflation target."

The dollar index .DXY, which tracks the greenback against a basket of six major peers, slipped 0.3 percent to $95.386. It touched a six-week high of 96.333 on Wednesday, before ending the day down 0.4 percent from its previous close.

Another central bank struggling with too-low inflation is the Reserve Bank of New Zealand, which held rates steady on Thursday but renewed a pledge to cut again even as much of the domestic economy grows briskly.

The RBNZ's blunt statement that further easing would be needed knocked the local dollar down 0.2 percent to $0.7334 NZD=, but the market has found it hard to sell a currency that still offers an overnight interest rate of 2 percent.

The Australian dollar AUD= edged up 0.25 percent to an almost two-week high of $0.7641 after Reserve Bank of Australia Governor Philip Lowe said interest rate cuts and a weaker currency are helping the economy, and that it was "not particularly useful" to keep cutting rates in the hope that it will eventually lift growth.

In commodity markets, gold traded down 0.3 percent at $1,332.63 an ounce XAU=, having climbed 1.7 percent as the U.S. dollar declined on Wednesday.

Oil prices added as much as 3 percent on Wednesday after a third surprise weekly drop in U.S. crude stockpiles boosted the demand outlook in the world's largest oil consumer.

Another supportive factor was an oil workers' strike in Norway, which threatened to cut North Sea crude output.

Britain's top share index rose on Wednesday, buoyed by its banks after the Bank of Japan overhauled its monetary policy framework, with Barclays leading gainers after a broker upgrade.

The FTSE 350 bank index was up 1.5 percent after the Bank of Japan (BoJ) shifted key policies to establish control over interest rate yield curves, instead of its money-printing programme.

It recommitted to reaching its elusive 2 percent inflation goal as quickly as possible. Easy monetary policy, low interest rates and low growth have hit bank profitability in recent years.

"There's a follow through from the BoJ statement today, so financials are bid on that. The yield curve benefit from Japan in the banks today is quite a strong one," said Zeg Choudhry, managing director of LONTRAD.

"The market was pretty tired of the lack of benefit from existing policies. So they had to do something different."

Top riser was Barclays, which received the additional boost of an upgrade to "buy" from "neutral" by HSBC.

British banks have suffered since the country voted to leave the European Union, with the Bank of England cutting interest rates again. The number of "buy" ratings on Barclays has dropped to 9 from 16.

"The deleterious impact of low or negative interest rates ... has been the principal investment theme for UK banks since the EU referendum," said analysts at HSBC in a note.

However, Royal Bank of Scotland went the other way, down 1.4 percent and the top FTSE 100 faller, after the Financial Times reported that Banco Santander has pulled out of talks to buy its Williams & Glyn unit.

LONTRAD's Choudhry said that RBS was the only big UK-listed bank which lacked catalysts to sustain a rally.

Britain's FTSE 100 rose 0.4 percent to 6,859.54 points by 0829 GMT, up for a third straight session

Anglo American and Rio Tinto rose 2.7 percent and 2.1 percent after target price upgrades, while mid-cap Kaz Minerals rose 5 percent after it was upgraded to "equal weight" from "underweight".

Barclays said that the re-introduction of dividends earlier than expected was "an increasingly likely and powerful catalyst", echoing other analysts who see scope for a rise in dividends in the sector.

Anglo-Dutch publisher Relx fell 1.1 percent after Macquarie cut its rating on the stock to "underperform".

Wednesday, 21 September 2016

Go with your gut. Traders who have stronger hunches make more money and last longer in the profession, a scientific study published on Monday has found.

The findings turn on its head the Efficient Markets Hypothesis, which posits that its impossible to beat the market using human skill because prices fully reflect all available information and give man a leg up in the race between humans and algorithmic machines that have risen in prominence in trading firms.

"We find on the contrary that the physiological state of traders does have large effects on their success and survival," said John Coates co-author of the report and former Research Fellow in Neuroscience and Finance at the University of Cambridge and former Goldman Sachs and Deutsche Bank derivatives.

"Humans can indeed compete against the machines."

A study of 18 male City of London "high-frequency" traders, who buy and sell financial products but hold positions for only a few seconds, was conducted in 2012 during the tail end of the euro zone debt crisis to measure interceptive ability - a scientific term for signals originating inside the body, such as hunger, pain and heart rate - or so-called 'gut' feelings.

The traders performed two established heartbeat detection tasks, which measure how well a person, when at rest, can feel their heart beating.

The data was compared with that of a control group of 48 non-trader males, matched with the traders on age and who performed identical tests.

The results showed that the traders scored significantly higher in their ability to detect their heart beats than the non-traders and the higher they scored the greater their trading performance and the longer they had survived in the financial markets.

What's more, the fitter the trader, the better their detection ability.

"Academic economics and finance is so focused on conscious reasoning that they completely miss the real action, which is taking place in the dialogue between brain and body," said Coates, who also wrote a book published in 2012, "The Hour Between Dog and Wolf", about the impact of biology and neurochemistry on trading.

"After years of focusing on an algorithmic trading edge, finance is now looking at how to make human traders better."

Previous scientific studies using a gambling task have shown that automatic physiological responses, or gut feelings, feedback to the brain, steering humans away from gambles with negative expected returns and towards ones with positive returns, guiding the gambling away from taking risks before even being aware of it.

The dollar jumped on Wednesday after the Bank of Japan altered its policy framework, and investors bought back the U.S. currency ahead of the outcome of the Federal Reserve's policy meeting later in the session.

Japan's central bank, overhauling its massive stimulus program, decided to scrap its focus on monetary base and set targets for long-term rates.

The BOJ maintained the 0.1 percent negative interest rate it applies to some of the excess reserves that financial institutions park with the central bank.

But it abandoned its base money target and instead set a "yield curve control," under which it will buy long-term government bonds to keep 10-year bond yields around current levels of zero percent.

The dollar was up 0.8 percent at 102.54 yen JPY=, after rising to a nearly one-week high of 102.67.

"The monetary base was abandoned, which could be supportive for the dollar, overall," said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo.

"Many people expected the BOJ not to take any action at all, and the yen to strengthen, so we now see many people buying the dollar back," he said.

The euro surged 0.7 percent to 114.17 yen EURJPY after earlier dropping as low as 112.50, its lowest since Aug. 16.

Against the dollar, the European unit was down 0.2 percent at $1.1133 EUR..

Japanese data released earlier on Wednesday showed exports fell 9.6 percent in August from a year earlier, posting an 11th straight month of decline.

In addition to the BOJ, investors' attention is also on the Fed. The U.S. central bank is widely expected to hold interest rates unchanged at 0.25 percent to 0.50 percent, and could hint at a rate hike by the end of the year.

Weaker-than-expected U.S. economic data has prompted investors to call off bets for a Fed rate hike on Wednesday.

On Tuesday, data showed U.S. housing starts fell more than expected in August as building activity declined broadly after two straight months of solid increases.

The British pound steadied after tumbling in the previous session, extending its losses after head of Germany's Bundesbank warned on Monday that banks based in Britain could lose "passporting" access to EU markets after Britain's pending exit from the European Union.

Sterling was down 0.2 percent at $1.2958 GBP= after skidding to $1.2946, its lowest since Aug. 16.

U.S. Federal Reserve policymakers are set this week to again cut their forecasts for how high interest rates will need to go in an economy where output, productivity and inflation are growing at a slower pace than in past decades.

It would be the fourth time in 15 months that the U.S. central bank has been forced to admit its estimate of this so-called neutral rate was too optimistic, raising questions about the health of the economy in the coming years.

The Fed, however, still insists low interest rates and its large balance sheet of bonds are sufficient to continue bolstering economic growth.

Conversations with Fed officials suggest some will cut their predictions for the longer-run rate at this week's monetary policy meeting, with the median forecast possibly falling to 2.75 percent. It was 3.75 percent in June 2015 and 4.25 percent four years ago.

The Fed is expected to leave its benchmark overnight interest rate unchanged following its two-day meeting on Wednesday, according to a Reuters poll of economists.

The Fed's policy rate has been about 0.38 percent since it was raised in December, the first increase in nearly a decade.

The expected reduction in the longer-run neutral rate forecast amounts to a lower speed limit on future rate hikes, and points to fewer increases with longer gaps between them than U.S. central bankers and investors had expected.

The lower the neutral rate forecast, the less anxious the Fed needs to be about tightening policy, which would justify its repeated decisions to defer rate increases.

The result, says San Francisco Fed President John Williams, will be the "shallowest" set of rate hikes ever; "much flatter," according to Dallas Fed President Robert Kaplan in a separate conversation, than anything in the past.

The Fed has not raised rates this year despite signaling in December that four rate hikes were coming in 2016. That number has since been scaled back to two hikes this year, with another three hikes in 2017, due to a global growth slowdown, financial market volatility and tepid U.S. inflation.

But given the new thinking on the neutral rate, that seems overly optimistic.

Fed policymakers say an aging U.S. population and decline in productivity growth is sapping economic potential, making them wary about raising rates too fast.

"They are not very far from being in a tightening mode," said Shehriyar Antia, founder of Macro Insight Group and a former senior analyst at the New York Fed. "That augers for more patience since the risk of you falling behind with inflation is less because it ain't going to take that much for rates to lean on inflation."

FED TOOLBOX

Regardless of any reduction in the neutral rate estimate this week, Fed Chair Janet Yellen is likely to stick with her view that the central bank's so-called toolbox - its more than $4 trillion in Treasuries and mortgage-backed securities, low interest rates and planned gradual removal of stimulus - is appropriate for an economy that has consistently fallen short of growth forecasts.

During the global central banking conference last month in Jackson Hole, Wyoming, Yellen said that policy mix had served the Fed well and would likely be useful in the face of a future economic downturn.

But the Fed's constant walk-backs have served to undercut some of the market's faith in the central bank. Traders of short-term rate futures, for instance, are now betting the Fed will not hike rates until early next year.

Still, any cut to the Fed's neutral rate forecast does not mean it will never raise rates.

"They want to maintain market expectations for a rate hike in case they want to raise rates in December if conditions warrant one," said Sam Bullard, a senior economist at Wells Fargo Securities in Charlotte, North Carolina.

The Fed is due to release its policy statement at 2 p.m. EDT (1800 GMT) on Wednesday and Yellen will hold a press conference shortly after. The Fed's rate-setting committee will meet again in early November and mid-December.

Tuesday, 20 September 2016

Asian shares edged lower on Tuesday as investors nervously awaited the outcomes of Federal Reserve and Bank of Japan policy meetings that will both conclude on Wednesday.

"The market is more nervous about the BOJ than the Fed as it may give the market a surprise," said Yutaka Miura, a senior technical analyst at Mizuho Securities.

Financial spreadbetters predicted the uneasy mood would extend into European markets

"Today’s European open is likely to see a slightly softer open after yesterday’s paring back of oil prices from their intraday highs," wrote Michael Hewson, chief market analyst at CMC Markets in London, who expected Britain's FTSE 100, Germany's DAX and France's CAC 40 to all open modestly down.

Oil had rallied on Monday before settling off its highs on scepticism over Venezuela's bid to talk up a potential OPEC output freeze, and on indications U.S. crude stockpiles had risen last week.

EMini futures for the S&P 500 edged up 0.2 percent, after major U.S. indexes ended Monday's choppy session nearly flat.

Global markets have been blowing hot and cold in recent weeks over the Fed's intentions, which remain far from clarified after both hawkish and dovish comments from several Fed officials.

The consensus is that the Fed will leave interest rates unchanged at the end of its two-day meeting on Wednesday, with investors focusing on the statement as well as Chair Janet Yellen's speech for clues on the timing of the central bank's next interest rate increase.

"It's a lot of uncertainty, leading into the Fed," said Jennifer Vail, head of fixed income research at U.S. Bank Wealth Management in Portland, Oregon.

While Vail, like most strategists and investors, expects the Fed to refrain from taking any new steps, she said its statement could include language that's been missing from its recent assessments, such as whether economic risks were "balanced" or "close to balanced."

Australian shares finished slightly higher. The Australian Securities Exchange opened without incident on Tuesday after technical faults caused extensive disruptions on Monday.

Japan's Nikkei stock index erased earlier gains and shed 0.2 percent, as trading resumed after a public holiday on Monday. Tokyo markets will be closed for another holiday on Thursday, with the highly-anticipated BOJ meeting sandwiched in between the market closures.

The BOJ could make negative interest rates the primary focus of its monetary policy at the conclusion of its meeting on Wednesday, when it conducts what it described as a "comprehensive" assessment of its policies.

Sources have said BOJ policymakers may consider deepening negative interest rates to show determination to maintain an ultra-easy policy bias. The BOJ unveiled its controversial policy in late January.

Rising speculation that the BOJ will stop short of the dramatic action needed to weaken its currency helped send the dollar to a six-day low against the yen of 101.56 yen on Monday. The dollar was last down 0.1 percent at 101.80 yen.

Wary of a flattening Japanese government bond yield curve, the BOJ also could seek ways to steepen the curve, such as making its bond buying more flexible.

Policymakers got a taste last week of how markets might react when investors dumped longer-dated bonds on fears the BOJ would slow its purchasing pace.

"The BOJ will likely be the first (among the US and Europe) to push the boundaries of unorthodox monetary policy, having to balance a challenging macro environment with the negative impact of flat curves and negative yields on the financial sector and on the pension system," said Andrea Iannelli, investment director for fixed income at Fidelity International.

The euro was also steady at $1.1173, remaining well above Monday's nearly two-week low of $1.1149.

The dollar index, which tracks the greenback against a basket of six major rivals, was slightly higher at 95.868, though it was shy of Friday's two-week high of 96.108.

Spot gold added 0.2 percent to $1,315.90 an ounce, on expectations that the Fed will stand pat on rates.

Market volatility is low, U.S. census data shows income gains have reached the middle class, and workers are clawing back a larger share of national income. For now, at least, no international risk stands out and inflation may even be picking up.

If Fed Chair Janet Yellen wants to prove that policymakers are not being pulled along by investors who for years have second-guessed them, this week may offer a rare moment of calm to do so.

The Fed is divided enough ahead of its Sept. 20-21 rate meeting that a nudge from its most influential policymaker could make the difference, and even some investors have begun to argue it is time for the central bank to stop worrying so much about what markets expect.

"Let's get on with it already," said Michael Arone, chief investment strategist at State Street Global Advisors.

"It will cause some challenges to the market but I think that is healthy in context of a normal business cycle," Arone said. "It will increase the cost of capital, and flush out some riskier assets in the short term. But that is probably the right thing to do."

A Reuters poll last week suggested it is a very long shot.

The poll showed the median probability of a rate rise provided by economists was about one-in-four and only 6 percent of those surveyed expected the Fed to act, with the majority expecting the Fed to wait until December.

Fed funds futures trading shows that investors are even more skeptical than that, and expect the Fed to stay put until February - more than a year after the central bank raised rates and signaled more would come this year and next.

Instead the central bank has been stuck at the 0.25 to 0.5 percent range set last December when it lifted rates for the first time in a decade.

DOUBTS OVER ECONOMY, OR YELLEN?

Many investors, economists, activists, and some policymakers say the economy is still not ready for higher rates.

The receding rate rise expectations may reflect such concerns about the U.S. economic recovery. They may also reflect doubts, however, about Yellen's message that the case for a rate increase is growing stronger.

Such skepticism about the Fed's plans to end policy calibrated to fight a financial crisis and recession forces officials to perform a difficult balancing act.

The deeper investors discount the likelihood of Fed action, the greater the risk any move will trigger an overreaction with unpredictable and negative economic fallout, making policymakers more hesitant to act.

It is a cycle that may require taking a calculated risk to break, officials say.

"We are in a minuet with markets and cannot ignore how markets are pricing," Atlanta Fed president Dennis Lockhart said last week, before the Fed's blackout period for public comments.

The Fed has been caught in that dance for five years now. While at the beginning of 2011 trading in euro-dollar futures was still foreseeing a return to typical interest rates over the next few years, that view has given way to expectations that rates will remain low for a decade to come.

Those expectations have become deeply anchored and, some argue, encouraged by the Fed's reluctance to increase rates even as the economy has approached its employment and inflation targets.

Analysts who follow the Fed complain that its framework has become confusing: low unemployment and inflation close to the 2 percent target would not seem consistent with a policy rate more aligned to a recession.

CACOPHONY

The assorted views of regional bank presidents and board members in recent weeks muddy the waters further. They have ranged from warnings of runaway inflation to suggestions the Fed should increase its inflation target because prices are so weak.

Thrown into the mix as well have been calls for a full-blown policy overhaul, and a suspicion that the economy may be stuck in a rut with little anyone can do about it.

Among that chorus of voices, Lael Brainard, a former Obama administration official and since June 2014 a Fed governor, has become a central figure in shaping the image of a Fed that errs on the side of caution when interpreting data and events.

Since the rate debate intensified last year, Brainard has spoken ahead of five out of the six key policy meetings, laying out her view that the U.S. recovery could not be taken for granted in a world of potentially perpetual economic weakness. The quarterly meetings that end with a news conference are considered the most likely sessions for Fed action.

She repeated that line last week and called for "prudence," effectively stamping out any rate rise speculation..

Brainard's argument seemed prescient last summer when she presented it the first time. The following 12 months brought market volatility linked to China's economic weakness and later concerns about the fallout from Britain's vote to leave the European Union. The turmoil weighed on the Fed's outlook for the U.S. economy.

Things have since calmed, and through it all the U.S. economy has continued to generate jobs. Equity markets are up so far this year, while volatility in the U.S. bond market is near its lowest level since late 2014.

To be sure, a Bank of America Merrill Lynch measure on expected swings in the bond market in three months did pick up after the European Central Bank refrained from extending its 1 trillion plus euro bond purchase program. Uncertainty about Bank of Japan policy, and possible swings in the dollar that could hurt U.S. manufacturers, remains a risk.

But to some, those risks have become less important than the uncertainty stemming from the Fed itself.

JP Morgan chief executive Jamie Dimon said last week it was the right time for the Fed to move, a call echoed by the country's credit union sector.

"Folks in the credit union world - the majority want the Federal Reserve to raise interest rates," said Steve Rick, chief economist for CUNA Mutual Group, an insurer and financial company whose products are sold through credit unions.

"A quarter point is not going to kill the economy at all. But you would have banks more willing and credit unions more willing to lend if they believe interest rates were giving a clear signal," Rick said

Monday, 19 September 2016

The dollar edged lower on Monday, paring some of the gains made in the wake of strong U.S. inflation data that bolstered bets the Federal Reserve will raise interest rates this year.

The dollar index .DXY, which measures the greenback's value against a basket of six major currencies, fell 0.2 percent to 95.888 . On Friday, it touched 96.108, its strongest level since Sept. 1.

U.S. consumer prices rose more than expected in August, data on Friday showed, pointing to a steady build-up of inflation that could allow the Fed to raise interest rates this year.

U.S. short-term interest rate futures are now implying a 55 percent chance of the Fed raising interest rates by December, compared to around 47 percent before the CPI data, according to CME Group's FedWatch Tool.

The implied probability of the Fed raising interest rates at its policy meeting this week remains low, at 12 percent.

It remains to be seen whether the U.S. central bank will manage to raise interest rates by December without triggering a bout of dollar strength, said Teppei Ino, an analyst for Bank of Tokyo-Mitsubishi UFJ in Singapore.

"That will test its (the Fed's) skill and will hinge on how they communicate," Ino said.

A rise in the dollar can increase disinflationary pressures on the U.S. economy, a point touched upon recently by a Fed policymaker.

Fed Governor Lael Brainard had said last Monday that low interest rate policies across advanced economies could make the United States more vulnerable to spikes in the value of the dollar, which could put downward pressure on inflation.

The euro edged up 0.1 percent to $1.1166 EUR, having touched a low of $1.1149 earlier on Monday, its lowest level since Sept. 6.

The dollar eased 0.2 percent against the yen to 102.02 JPY= in holiday-thinned trading, as Japanese markets were closed for a public holiday.

All eyes this week will be on the policy meetings by the Fed and Bank of Japan on Sept. 20-21.

The BOJ is due to conduct a comprehensive review of its current policy framework that combines negative interest rates with a massive asset-buying program.

Unless the BOJ surprises by adopting some form of radical policy easing, the yen will probably strengthen after its meeting, said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore.

"Unless they were to say that they will buy foreign bonds or something like that, the yen will probably rise," Okagawa said.

The BOJ is seen as highly unlikely to resort to foreign bond purchases, especially since the finance ministry has jurisdiction over currency policy, meaning the BOJ cannot buy foreign bonds in any way that influences exchange rate moves.

Sterling edged up 0.3 percent to $1.3038 GBP on Monday, getting a bit of reprieve after falling 1.8 percent on Friday.

With Britain's parliament back in session and focus returning to the uncertainty surrounding the UK's negotiations to leave the European Union as well as the prospect of further easing by the Bank of England, sterling has retreated after hitting a seven-week high of $1.3445 in early September.

World stocks steadied at two-month lows on Thursday though bond markets stayed firmly in the red, as eight years on from the collapse of Lehman Brothers two of Europe's top central banks prepared to keep their interest rates pointing down.

Europe's main stock markets in London .FTSE, Frankfurt .GDAXI and Paris .FCHI dipped in and out of positive territory as the region struggled to pull out of a five-day losing streak.

Primarily it has been caused by nagging concerns that having resorted to previously unthinkable measures like negative interest rates and mass money printing, top central banks are now running out of options to get economies going.

Euro zone bond yields crept up again in early deals as the real power driver, the 10-year U.S. Treasury yield climbed back past 1.71 percent which lifted the dollar .DXY against the yen

"We are 150 percent focused on the fixed-income selloff," said State Street's head of global macro strategy Michael Metcalfe.

"The market concern is that the central bank support is going to be different going forward," he said, adding that tandem falls in equity and bond markets pointed to "a big unwind of risk".

That theme of central bank policy effectiveness was live.

The Switzerland's central bank kept its key interest rates in deep negative territory in Zurich and repeated its view that the Swiss franc was "significantly overvalued" and that it was willing to intervene in the FX markets.

The franc barely budged.

The Bank of England was also meeting, with it widely expected to stand pat after cutting rates and ramping up its stimulus program last month in a bid to limit any Brexit damage to the UK economy.

Economists and traders will be watching carefully though to see whether it reconfirms that it plans to cut rates again toward the end of the year.

"The BoE is important in a broader sense for the market," said State Street's Metcalfe. "That would send the message that at least one of the major central bank is still being as easy as can be."

GOLD SHINES

A soggy Asian session had seen the Nikkei in Tokyo N225 slide 1 percent following an uninspiring performance from Wall Street where the Dow .DJI lost 0.2 percent and the S&P 500 .SPX shed 0.1 percent.

Both the U.S. Federal Reserve and the Bank of Japan hold policy meetings next Wednesday. The BOJ is in particularly focus with it due to comprehensively review its policies.

Sources say board members could debate cutting the bank's rates further and changes to its already massive asset-buying program.

Among commodities, Brent crude limped up 0.6 percent to $46.11 a barrel after dropping 2.6 percent on Wednesday when data showing large weekly builds in U.S. petroleum products offset a surprise draw in crude stockpiles.

Metals markets were drifting for the most part with China's exchanges now closed for the rest of the week for a public holiday, while gold, which investors often see as a safe-haven asset, edged higher amid the cautious market mood.

Emerging markets continued to be buffeted by that caution meanwhile, with key currencies falling against the dollar and MSCI's closely followed 27-country EM index down for a fifth day.

There was good news for Ukraine though as IMF agreed after a delay of almost a year to hand over the latest instalment of its $17.5 billion four-year bailout.

Saturday, 17 September 2016

How to choose a Broker

If you want
to get some more basic information on brokers, and more information on
different regulatory bodies that provide oversight for Forex brokers as well as
articles that dig deeper into the different aspects on choosing a Forex broker
that we talk about on this page, you will find that in our Forex broker tips
section.

The
broker’s offer and services

After you have
found a broker that you think you can trust with your money, it is time to look
at the offer and services you should expect from your broker.

My top list
of things to check out include the following:

1. Spread Margins

2. Execution of orders

3. Trading Platform

4. Support

1. Spread
Margins

Forex
brokers usually charge a commission on deals by taking part of the bid offer
spread, so the tighter their spreads, the more money the trader saves. If your
preferred trading strategy is more active than most, then spread margins will
be more important for you.

2.
Execution of orders

Speed is
really important when it comes to execution of orders. You should test his
speed and effectiveness with a demo account with the broker you have chosen.
More on demo accounts later. In some cases, the demo account may not be a good
barometer. You should also check other online reviews to find out if there are
“slippage” problems or constant re-quotes from the broker. If the speed and
effectiveness is not there, then choose another broker!

3. Check
out the trading platform

You need to
determine the ease of use and reliability of the broker's trading platform, in
addition to the quality of the online market information offered by the broker
to its clients. Does the platform need to be downloaded, as with Metatrader4,
the most popular and widely used platform on the market? Some downloads are
easier than others. Is the platform a proprietary design? This situation may be
good or bad. Demo testing can help here, as well. It is not always easy to
decide the best forex trading platform since it depends on your needs. Are you
on the go and need to access your account via an iPhone or Android device? Some
brokers support mobile trading. Others do not.

4. Support

Remember,
the Forex market is open 24 hours a day almost 6 days a week, if you count from
the opening of the week in Sydney Monday morning until closing in NY Friday
afternoon. See the forex market opening times. Different time zones can impact
the accessibility of customer support services. If the broker’s support crew is
on one side of the globe and you are on the other, you might need support from
your broker on a 24-hour basis. We highly recommend that you choose a broker
with 24-hour support.

These were
our four most important points to review when accessing the capabilities of
your prospective broker. It also helps to be aware of the pitfalls that can
occur in the Forex industry. Here are a few tips that could alert you to the possibility of questionable business practices and help you to easily discard

prospective brokers on your short list.

1:
What to watch out for

Beware of
Unusual Trading Rules

Beware of
forex brokers with arcane trading rules, such as giving you a minimum time to
hold a position or denying you to “pip hunt”.

2 Beware
Outrageous Marketing Claims

There are
unscrupulous brokers that will attempt to attract your interest with marketing
claims that seem too good to be true. In most cases, be suspicious of claims of
high returns, super tight spreads, and professional support that will help you
make a fortune in Forex trading. Competition is high, and many brokers will say
anything to get your initial deposit. Be wary and sceptical. You are your first
line of defence when it comes to preventing fraud.

3 Avoid
Brokers That

Re-quote

Re-quoting is the situation where your trading platform shows a certain price, and then
when the trader goes to deal on it, the platform makes them wait, and then
shows them another often worse price.

Excessive
slippage on stops

Slippage
occurs when an order, usually a stop loss, is not executed by a Forex broker at
the rate at which it was placed. Instead, the order is filled at a rate that is
usually worse than originally intended by the trader.

4 Front
running orders

Front
running means that the broker may be holding an order for an especially large
commercial transaction and might trade it ahead of or "front run" the
order to make money at the client’s expense.

Step 4:
Other considerations

You will
want to read the prospective broker’s official website and any documents
thoroughly to get clear on both their terms and operational rules of the road.

5 We also
suggest you give their customer support a test call. You will want to assess
the helpfulness and market expertise of the customer service department when
assisting you in getting started trading or in case a problem arises. Brokers
that fail to answer questions or that put you on hold when you try to call in
are best avoided.

6 Withdrawals
and Deposits

Make sure
that the Forex broker's withdrawal and deposit policies agree with you. Some
brokers charge exorbitant fees for bank or wire transfers, while some will even
take PayPal.

Also, some
brokers can make you wait an agonisingly long time to withdraw your funds. Make
sure you have this information before you give them your money.

7 Make use of
bonuses

Make sure
to check out the prospective broker’s bonus offering. Often they will provide
you with some kind of extra bonus with your first deposit. Some of them also
offer other types of bonuses for you as a loyal customer. Make sure to understand
the terms and conditions connected to the bonus.

8 What type
of account to use?

There are
demo trading accounts and live trading accounts. We always recommend that you
start trading with a demo trading account to check out the trading platform.
But you need to understand that there are differences between demo and live
trading.

When you
are ready to open a live account we recommend that you start trading with a
micro account first.

9 Checklist of features

The
following list presents many of the more desirable features and services
offered by Forex brokers. We have already covered many of these in the above discussion, but not all. This list will help you prioritise your personal
needs.

• Competitive dealing spreads

• Fast and reliable executions

• Mobile phone trading support

• Automated trading support

• Dependable order execution on stop loss
orders

• Minimal slippage on stops

• Easy deposits and withdrawals

• Sign up bonuses and promotions

• Trading in a wide array of currency
pairs

• Trading in other markets such as gold,
silver and crude oil

• Low initial deposits

• Instructional material for novice
traders

• Personalized trading strategy and market
advice

• Economic calendars

• Reuters or AP/Dow Jones financial
newswires

• Forex expert market commentary

• Calculators and trading tools

• Technical analysis tools

• Charting software

• Size of dealing lots

• High leverage accounts

• Competitive rollover fees

Most of
these services can be obtained through a variety of online retail Forex brokers, so it is up to you to determine what services you consider important
for your personal trading needs. Your goal is to select the broker that best
suits your personal trading needs.

Concluding
Remarks

As you
might expect, the larger the Forex broker, generally the more services the broker can make available to their clients, the tighter their dealing spreads,
the more reliable their trading platform and the faster their transaction
executions are likely to be. Thus, in general we recommend that you choose one
of the larger brokers.

Any
qualified Forex broker will provide you with a reliable trading platform,
24-hour customer support during Forex trading hours, charting and technical
analysis tools, access to quality Forex news and commentary, competent order execution, competitive dealing spreads and a wide choice of currency pairs to
trade. Brokers offering any less than this basic package should not be
considered in the selection of a Forex broker, since today’s market offers a
broad blend of online retail Forex brokers for your consideration.

Performing
adequate due diligence on the front end on your prospective Forex broker, before making your first trade, can literally save you thousands of dollars and
prevent nightmares from ever happening down the road. Finding the right broker
for you and your trading needs is your top priority. Invest the time that this
task requires, and you will never regret it.